Can You Hear Me Now?

When telemarketers call his house, Federal Trade Commission chairman Timothy Muris doesn’t hang up. He listens. “I sort of like telemarketing calls,” he says. “I like to know who is selling what. They don’t especially bother me, but they bother my wife.”

Muris may not be annoyed by the calls, but he knows a large number of Americans are. A 1999 National Consumers League survey ranked telemarketing third in a list of everyday nuisances, behind only junk mail and automated phone systems. Shortly after becoming FCC chairman in 2001, Muris said his agenda would include establishing a national do-not-call registry for consumers who want to limit telemarketing calls. “It seems like a no-brainer to give people a choice about whether they want the calls,” he says.

This past February, Congress gave the FTC authority to establish a national do-not-call list. Even 10 years ago, such a list was unthinkable, Muris says, because the technology that would allow the FTC to manage it did not exist. Now, the Internet and, ironically, the automated phone systems that so aggravate consumers have made such an idea possible.

“The issue has a lot of appeal politically because consumers are so worked up about telemarketers,” says Michael Turner, president of the Information Policy Institute, a New York-based research firm. “The FTC and Congress have been looking at privacy and data flow for a long time, and it is natural to pluck the lowest-hanging fruit.”

Telemarketers fear a national do-not-call list will put a serious dent in an industry that racked up $662 billion in sales from calls to households in 2001, according to the latest figures from the Direct Marketing Association. That’s up from $275 billion in 1991, and a large chunk of change for a practice that consumers profess to abhor, and speaks to the central paradox of telemarketing: People say they hate the calls, but they still buy.

In fact, in a survey of 1,000 people done last June by the Information Policy Institute, eight out of 10 respondents said they had bought a product, contributed to a charity or made a political donation in the past 12 months as a result of a telemarketing call. Five out of 10 had bought a product or service, at an average cost of $50. The No. 1 product purchased was a newspaper or magazine subscription.

The number of calls to households has grown in the past decade, but there is no official data on the size of the increase. Jerry Cerasale, svp for government affairs at the DMA, told the FTC at a workshop last June that 104 million telemarketing calls are made each day to businesses and residences. That works out to about two calls per week to residences. But Private Citizen, a Naperville, Ill., group that advocates for consumer privacy, says the number is closer to two calls per day.

To the telemarketing industry, a national do-not-call list is a grave prospect. Industry representatives say 60 percent of American households are likely to sign up, and many telemarketing firms will be forced to lay off operators or even go out of business. “I don’t think it will kill the industry, but I do think it will do substantial harm,” says Matt Mattingley, director of government affairs for the American Teleservices Association, which represents telemarketers. “With the economy in the shape it is in, that seems to be a less-than-prudent action on the part of the [Bush] administration.”

The ATA and the DMA have separately sued the FTC, claiming the do-not-call list violates telemarketers’ First Amendment right to free speech. But there are jurisdiction problems, too. The FTC and the Federal Communications Commission both have the authority to regulate the industry, and telemarketers are worried they will have to answer to two different sets of rules.

Under the Telephone Consumer Protection Act of 1991, the FCC requires companies to maintain internal do-not-call lists—known as company-specific lists—and honor customer requests to be on them. But the Telemarketing Consumer Fraud and Abuse Prevention Act, passed by Congress in 1994, also gave the FTC the authority to fight fraudulent and abusive telemarketing practices. Further complicating matters, 28 states currently have their own individual do-not-call lists.

The problem for consumers is the FTC’s list will not stop all telemarketers from calling. The FTC has no authority to regulate telemarketers from banking, insurance or telephone companies. Those businesses fall under jurisdiction of the FCC, which announced last year that it was reviewing its own telemarketing rules. Earlier this year, Congress told the FCC that it must “consult and coordinate” with the FTC to reconcile telemarketing rules, but it has yet to do so.

Even if that happens, nonprofit groups, charities and politicians will still be able to call. And the FTC has said there will be exceptions to its list. For example, companies may be allowed to call people who have bought, leased or rented something from them within the past 18 months.

“There is no total panacea,” says Susan Grant, vp for public policy at the National Consumers League. “You would have to basically go without a phone to avoid unwanted calls entirely.”

Robert Corn-Revere, a First Amendment attorney representing the ATA in its lawsuit against the FTC, says consumers have a perception problem concerning telemarketing. He equates the issue with a scene from Annie Hall in which a psychiatrist asks Woody Allen’s character, Alvy, how often he sleeps with Annie. He replies, “Hardly ever. Maybe three times a week.” When Annie is asked the same question, she replies, “Constantly. I’d say three times a week.” “That is kind of how this issue is,” Corn-Revere says. “From one perspective it seems minimal, and from another it seems like an avalanche.

“The problem with a blanket do-not-call list is it requires a blanket pre-emptive decision in advance,” he says. “People don’t know in advance what services they would have benefited from. It closes an effective avenue of marketing to let people know about these things.”

At the FTC, the consensus is that telemarketers had their chance but blew it. “Practitioners of this form of direct marketing have made increasing and aggressive use of every technology available to make more and more and more calls,” says Eileen Harrington, associate director of the FTC’s division of marketing practices. She says consumers also frequently complain that telemarketers don’t honor their requests to be placed on company-specific do-not-call lists. “This is an industry that has not been able to restrain itself,” she says.

At issue for the FTC is not annoyance but privacy. “Consumers should be able to put a fence up around their homes,” Harrington says. “That is really what this is about.”

Starting July 1, consumers can join the FTC’s do-not-call list by registering online and must renew their registration every five years. Beginning in September, telemarketers will be required to check the list every three months. The FTC will start enforcing the list in October, based on consumer complaints, and will fine companies up to $11,000 each time they call someone on the list. Every business that uses telemarketers to sell products must pay a portion of the $18.1 million required annually for the FTC to operate, maintain and enforce the list. The FTC has proposed charging sellers $29 per area code called, with the first five area codes free.

FTC chairman Muris expects 40-60 million numbers will be added to the registry in the first year. “Self-regulation failed here,” Muris says. “[Telemarketing] adds up to a little bit of harm to a very large number of people, and that is what makes it a serious problem.”

Spam Marketers Could Be Next

A six-foot-tall computer known as “The Refrigerator” is tucked away in a corner of the FTC’s Internet lab. In two years it has crunched some 34 million unsolicited commercial e-mails that the FTC has asked consumers to forward—so many, in fact, that some had to be placed in storage, a problem the staff refers to as putting “spam on ice.”

FTC chairman Timothy Muris sees spam as a “huge problem,” and he is gathering evidence. Next week the FTC will hold a three-day workshop with representatives from consumer and marketing groups to discuss consumers’ experience with spam, the technologies that distribute it and proposed anti-spam legislation, among other issues.

Some lawmakers think the government must step in. Senators Conrad Burns, R-Mont., and Ron Wyden, D-Ore., introduced a bill this month that would require valid return e-mail addresses on spam so recipients can ask to be removed from the lists. The bill also proposes allowing ISPs to take action against marketers to keep unlawful spam off their networks and giving the FTC the authority to impose fines.

A February survey by RoperASW found that at a time when consumer tolerance toward advertising is at an all-time high, annoyance with spam is growing. “The costs are enormous for people paying long-distance charges for their Internet time,” Burns said when his legislation was introduced.

Businesses are fed up, too. Acting on about 8 million complaints, America Online filed five federal lawsuits in the past two weeks against spammers it accuses of sending 1 billion junk e-mail messages to its subscribers, marketing pornography, steroids and mortgages. AOL is seeking $10 million in damages and an end to the messages.

Even the marketing industry is worried. “There is so much spam out there that even legitimate e-mails and order confirmations are being deleted,” says Jerry Cerasale, svp for government affairs at the Direct Marketing Association. That is dissuading some legitimate marketers from entering the space. “Our membership would like to look at e-mails, but right now the customer response is so negative because it is so uncontrolled and untargeted,” Cerasale says. “We think spam requires federal legislation, industry self-regulation and a potential technology filtering solution.”

Other marketers agree. Says Kevin Noonan, executive director of the Association for Interactive Marketing, a subsidiary of the DMA, “If the industry doesn’t do something, the federal government will.” —W.M.